Question
DuPONT ANALYSIS A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The
DuPONT ANALYSIS
A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $2 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:
Industry Average Ratios | ||||
Current ratio | 3.72x | Fixed assets turnover | 8.77x | |
Debt-to-capital ratio | 14.28% | Total assets turnover | 3.54x | |
Times interest earned | 15.24x | Profit margin | 7.20% | |
EBITDA coverage | 16.42x | Return on total assets | 26.83% | |
Inventory turnover | 10.00x | Return on common equity | 35.24% | |
Days sales outstandinga | 25.85 days | Return on invested capital | 34.57% |
aCalculation is based on a 365-day year.
Balance Sheet as of December 31, 2016 (Millions of Dollars) | ||||
Cash and equivalents | $60 | Accounts payable | $34 | |
Accounts receivables | 57 | Other current liabilities | 20 | |
Inventories | 134 | Notes payable | 27 | |
Total current assets | $251 | Total current liabilities | $81 | |
Long-term debt | 13 | |||
Total liabilities | $94 | |||
Gross fixed assets | 157 | Common stock | 77 | |
Less depreciation | 73 | Retained earnings | 164 | |
Net fixed assets | $84 | Total stockholders' equity | $241 | |
Total assets | $335 | Total liabilities and equity | $335 |
Income Statement for Year Ended December 31, 2016 (Millions of Dollars) | |
Net sales | $670.0 |
Cost of goods sold | 495.8 |
Gross profit | $174.2 |
Selling expenses | 67.0 |
EBITDA | $107.2 |
Depreciation expense | 11.4 |
Earnings before interest and taxes (EBIT) | $95.8 |
Interest expense | 4.4 |
Earnings before taxes (EBT) | $91.4 |
Taxes (40%) | 36.6 |
Net income | $54.8 |
Calculate the following ratios. Do not round intermediate steps. Round your answers to two decimal places.
Firm | Industry Average | |
Current ratio | x | 3.72x |
Debt to total capital | % | 14.28% |
Times interest earned | x | 15.24x |
EBITDA coverage | x | 16.42x |
Inventory turnover | x | 10.00x |
Days sales outstanding | days | 25.85days |
Fixed assets turnover | x | 8.77x |
Total assets turnover | x | 3.54x |
Profit margin | % | 7.20% |
Return on total assets | % | 26.83% |
Return on common equity | % | 35.24% |
Return on invested capital | % | 34.57% |
Construct a DuPont equation for the firm and the industry. Do not round intermediate steps. Round your answers to two decimal places.
Firm | Industry | |
Profit margin | % | 7.20% |
Total assets turnover | x | 3.54x |
Equity multiplier | x | x |
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